6 Reasons for drop in your credit score - Credit score dropped

There could be innumerable reasons for your credit score to drop. Let's discuss the most crucial ones:
  •     Your credit utilization rate could have increased.
  •     You could have missed a payment on one of your credit accounts.
  •     A disparaging remark could have been added to your credit score report.
  •     You may have closed an old credit account.
  •     You may have paid off your loan.
  •     You may have recently applied for a new loan or credit card.
Increase in Credit Utilization

This refers to the percentage of your credit limit that you are using. It is a high-impact factor when it comes to calculating your credit score. You can calculate your credit utilization rate by applying the following formula:

(Credit Balance/Credit Limit) * 100 = Credit Utilization%

Your credit utilization rate tells the lenders how reliable you would be with a loan. Low credit utilization is the best for maintaining a high credit score. It shows that you are keeping your expenses within limits by using only a small amount of credit. A low utilization rate, not exceeding 30%, is considered best for your credit score.

A high rate of credit utilization will bring down your credit score, as it indicates that you are overspending and might not be able to pay your bills on time. If you don't manage to repay on time, you end up paying a higher rate of interest. Hence, you would end up repaying more than what you had actually borrowed. Your funds would gradually deplete, leaving you with less money in your pocket.

What if your credit utilization rate is way above 30%? Don’t worry. It's not too hard to bring down your credit utilization ratio. You could reduce your expenses, pay off some outstanding credit bill, increase your credit limit, or even get yourself a new credit card.

Comments

Post a Comment

Popular posts from this blog

The Six Best Types of Loans you can Opt for during Hard Times

Banks and other lenders do not wish to give out new loans right now. It is too risky for them. Thus, they are acting conservatively right now, and targeting only a limited segment of the population as their preferred customer segment. However, if you are in need of an emergency fund, help is at hand. Loan against property These loans are sanctioned against collaterals of residential, commercial and interest property. The interest rates of LAP starts from 8.95% on an average. But it does depend on the lender, the amount of loan, the lender’s credit profile and other things. The maximum tenure is 20 years. Amount of loan depends on property valuation and the borrower’s repayment capacity. Gold Loan Bank’s may not want to give traditional loans like personal loans right now, but they are very eager to give gold loans. Why? That’s because gold loans are secured loans . You can get gold loans within a few hours after you apply. The amount you get as a loan can be 75% of the gold value and ...
Read more

Family Vacation - How to Save for Your Family Vacation

 Make a travel budget and stick to it Let’s face it. Buying a travel plan, going on a vacation, through a travel site or a travel agent can be expensive nowadays. They don’t just sell you trips, they sell experiences. And that is why a trip to Switzerland is more expensive than a trip to your local hill station. This is why it is important to have a budget, and to stick to it. There are so many ways to cut down costs. First of all, you can stay closer to home than leaving the state altogether. In case you really do want to take a trip abroad, take a vacation where it shall be more worthwhile. One thing to keep in mind is the international exchange rate. And here’s how to capitalize on the exchange rate. Check where your budget shall take you the furthest based on the exchange rate, and then pick the places where you want to go. It is prudent to research this rate before booking, instead of the other way around. Make short term sacrifices No matter where you are planning to go, you...
Read more

50/30/20 Budget - How Much Can You Spend Every Month?

 What you want is less money going out than coming in. In other words, your expenses need to be less than you’re your net income. Thus, before you think of buying something substantial, create a budget which takes care of your wants and needs. How much should you spend? When it comes down to your spending, it will be a good idea to use the 50/30/20 budget . When you use this formula, you can devote 50% of your net income to meeting needs like insurance and rent, 30% towards vacations and gym memberships, and 20% to things like savings and debt repayment. As you can see, your needs come before your wants, and what you spend always depends on how much you earn. Start with your net income At the end of each month, or at the beginning of the next month, you get your salary. It may look like a huge sum at first, but there is a limit to how much you can buy with it or do with it. That is why you need a budget. Now, start with your net income, which is your income after payroll deductions...
Read more